Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 18.10, Problem 1ST
To determine
Relationship between tax rate and tax base.
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Students have asked these similar questions
On average, does an increase in taxes raise or lower real GDP? If taxes as a percent of GDP go up 1 percent, by how much does real GDP change? Are the decreases in real GDP caused by tax increases temporary or permanent? Does the intention of a tax increase matter?
Suppose that the Philippine tax schedule given below is being implemented this year. (sorry, disregard the box)
Tax Payment
P 1,000
4,500
14,000
Annual Income
P10,000
30,000
70,000
140,000
250,000
500,000
35,000
75,000
160,000
The graph below shows the Laffer Curve,
Using the point drawing tool, identify a tax rate/tax revenue combination such
that tax rates can be reduced without reducing tax revenues. Label your new
point 'T,'
Carefully follow the instructions above, and only draw the required object.
Tax Rate
Tax Revenues
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Similar questions
- Over the past century, has the government’s tax revenuegrown more or less slowly than the rest of the economy?arrow_forwardTAXES Taxes are any governmental action that reduces the real income of wage-earners as well as non-working Americans. The action can also reduce the profit of business. Taxes act as a leakage from the GDP – Income Stream and will reduce both income and GDP over time. Think of taxes…. Did you buy gas on the way to school? Did it include a tax? When you purchase clothing at the mall, how much is the tax? Driver’s License? Fishing License? Hunting License? Tax on Concert Ticket? Tax on Airline Ticket? Are taxes withheld from your paycheck? Income, FICA and state or local taxes Paying bridge tolls? Taxes on personal or real property? Tax on new tires? Alcohol? Cigarettes? Imports with tariffs? Do all these taxes and licenses reduce our disposable income? Why do we sacrifice and pay these taxes? What are the ways that government helps us?arrow_forwardGovernment is considering a policy change to stimulate the economy by encouraging private consumption by reducing sales taxes. The loss of tax revenue will be made up by increasing taxes on corporate profits and excess savings. What are the short- and long-term effects of such a change?arrow_forward
- What role taxes policy plays in determining the GDP or national income in an economy? Explain with numerical examples?arrow_forwardConsider the economy of Cocoland, where citizens consume only coconuts. Assume that coconuts are priced at $1 each. The government has devised the following tax plans: Plan A • Consumption up to 1,000 coconuts is taxed at 35%. • Consumption higher than 1,000 coconuts is taxed at 20%. Plan B • Consumption up to 2,000 coconuts is taxed at 10%. • Consumption higher than 2,000 coconuts is taxed at 25%. Use the Plan A and Plan B tax schemes to complete the following table by deriving the marginal and average tax rates under each tax plan at the consumption level of 700 coconuts, 1,500 coconuts, and 2,500 coconuts, respectively. Consumption Level Plan A Plan B (Quantity of coconuts) Marginal Tax Rate Average Tax Ratearrow_forwardConsider the economy of Cocoland, where citizens consume only coconuts. Assume that coconuts are priced at $1 each. The government has devised the following tax plans: Plan A • Consumption up to 1,000 coconuts is taxed at 50%. • Consumption higher than 1,000 coconuts is taxed at 20%. Plan B • Consumption up to 2,000 coconuts is taxed at 10%. • Consumption higher than 2,000 coconuts is taxed at 25%. Use the Plan A and Plan B tax schemes to complete the following table by deriving the marginal and average tax rates under each tax plan at the consumption levels of 600 coconuts, 1,200 coconuts, and 2,500 coconuts, respectively. Consumption Level Plan A Plan B (Quantity of coconuts) Marginal Tax Rate Average Tax Rate Marginal Tax Rate Average Tax Rate (Percent) (Percent) (Percent) (Percent) 600 1,200 2,500 Complete the following table by indicating whether each…arrow_forward
- Congress would like to increase tax revenues by 5.5 percent. Assume that the average taxpayer in the United States earns $56,000 and pays an average tax rate of 20 percent. Required: If the income effect is in effect for all taxpayers, what average tax rate will result in a 5.5 percent increase in tax revenues? Note: Round your answer to 2 decimal places.arrow_forwardC = 450 + 0.4Y I = 350 G = 150 X = 70 Z = 35 + 0.1Y T = 0.15Y Yf = 1550 Calculate the tax revenue to the government of this country when the economy remains in equilibrium. Calculate what the new equilibrium income should be if the government of this country decides to cancel all taxes, implying the tax rate would now be 0%. Before the government decreased the tax rate, how much of government spending was required to bring the economy to full employment?arrow_forward- Most economists have reached the following conclusion about supply-side economics. Supply-side tax cuts are likely to reduce income inequality. Supply-side tax cuts are almost certain to lead to smaller budget deficits. Supply-side tax cuts are likely to widen income inequality. None of these.arrow_forward
- What is the Laffer curve. Graphically show how to increase the tax revenue.arrow_forwardDuring the past five decades, there has been a shift in the composition of the federal budget toward more spending on income transfers and health care and a smaller share for national defense. Does economics indicate that this change will help Americans achieve higher living standards?arrow_forwardIf the government of country H increases tax rate, tax revenue decreases. Choose a graph which shows the Laffer curve and correctly describes the current status of country H. ° Tax revenue The economy is ° Tax currently at point A revenue The economy is currently at point A ○ Tax revenue The economy is currently point A Tax revenue The economy is currently at point A Tax rate Tax rate Tax rate Tax ratearrow_forward
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